Posted on 13 March 2011 by Matthew
We are about to pay off the mortgage on our first home (value aprox Â£260k) and would like to invest in a second property as a potential pension alternative. We are both 37 and wondered what our options would be in terms of what we would need as a deposit, what type of mortgage would be available etc. One question I am unsure about is whether we would have to have a BTL mortgage? or could we just go for a normal repayment/interest one and rent the property out, with the safety net of our own surplus income enabling us to cover costs associated with rental, any non-rented periods and if all went well over paying on the mortgage. In my mind it seems like a good idea, we would be looking at it as a long term investment (15-20 years) and not looking for capital gain, more that someone else will be paying a large percentage of the mortgage over the period concerned.
The minimum deposit you would need is 15% but this would not give any choice of Lender or product. A deposit of at least 25% will give you a wide range of Lenders and products to choose from.
If your intention is to let the property you will need to arrange a Buy to Let (BTL) mortgage. If you arrange a residential mortgage with the intention of letting the property this is mortgage fraud and you could lose your property and liberty.
Even with a Buy to Let mortgage you have a choice of repayment methods and can choose either interest only, capital repayment or a mixture of both. Most Lenders now let you pay an extra 10% of the balance outstanding each year without incurring an early repayment charge (ERC), but do check there are a few who do not. Once out of your ERC period you will usually be able to over pay as and when you like.
I believe you would benefit from speaking to one of our independent mortgage advisers. Please call on 0344 346 3672 and tell the consultant the date and title of your question. They will be able to look at your situation and advise you accordingly.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.